FAAE Committee Report

The New Democratic Party generally agrees with the report and recommendations, however we feel compelled to express our disagreement with recommendation 4. We base this decision on the compelling testimony given by a number of witnesses who recommended stronger linkage to government commitments, in particular to sustainable development goals. Others recommended independence for the Development Finance Institution (DFI) from the EDC.   

Recommendation 4 provides that the DFI should be allowed to pursue its mandate in an independent manner, free from requirements to align its operating process with broader government or corporate policies.  The only exception added is for the DFI to ensure it operates in a manner consistent with Canadian values and interests.

A number of witnesses recommended a different approach. They recommended that the DFI could deliver its role in reducing extreme poverty more effectively if its programs serve to compliment and supplement Canada’s Official Development Assistance (ODA) policy, including delivering on Canada’s commitments to the sustainable development  goals (SDG 2030). As Minister of International Development, Marie-Claude Bibeau testified:

“As we know, in 2015, the international community adopted a new set of global sustainable development goals, or SDGs, to continue to address poverty and inequality. It is always really important to keep in mind that the goal of our new feminist policy, as in the case of sustainable development goals, is to fight poverty....The private sector’s involvement is key to achieving development results in order to end poverty and inequality.

Those new objectives are based on the idea that all parties and resources related to development must be mobilized. We know that official development assistance has helped generate significant gains over the past few decades. However, it is clear that public sector resources alone will not enable us to reach the sustainable development goals by 2030.

This is where the private sector comes in… This is where Canada’s new Development Finance Institution can play a key role…It has been shown that DFIs, in addition to supporting economic growth in developing countries, could successfully support our international development priorities.

The new institution will prioritize activities in areas such as action on climate change, clean energy, agrifood and infrastructure, including infrastructure related to water management and treatment. Financial services and businesses run by women and young people will also be a priority.”[1]

The Canadian Council for International Co-operation (CCIC) similarly expressed concern with an approach that focused solely on profit maximization over development impact:

“A disproportionate degree of investments have subsidized OECD country companies working in Middle Income Countries, with DFIs prioritizing profit maximization over development impact. In 2010, 50% of DFI investments went to the financial sector (financial intermediaries) who aren’t gearing their funding to local investments. And many of these investments pass through secrecy jurisdictions. Finally, transparency around financial leverage and development impact is still sorely lacking.” [2]

As Oxfam Canada’s Francesca Rhodes testified,

“The new DFI is an opportunity to be innovative and to leverage finance for poverty reduction and gender equality. Canada will need to be bold in how it is designed in order to ensure that these goals are met. Higher finance should never be a replacement or substitute for aid. However, if designed carefully and in alignment with Canada's new feminist international assistance policy, the DFI could add important contributions toward achieving these same goals.”[3]

Of particular importance the DFI should give particular attention to supporting women-led small and medium-sized enterprises (SMEs). Using Canada’s Feminist International Assistance policy as guide would provide the DFI with the important niche identified above.  As CCIC noted, “micro- and small enterprises account for the bulk of employment [in developing countries], even middle income countries. Yet there is a $850 billion shortfall in credit for SMEs, and women consistently face barriers in accessing such capital.”

By taking an approach which compliments and supports Canada’s ODA policy the DFI will be more effective in its core purpose of reducing extreme poverty in countries in the greatest need of assistance. If the DFI takes an approach which is not aligned with Canada’s policies its small level of funding will prevent it from making a significant impact on poverty reduction.

Some witnesses recommended that the DFI could more effectively deliver its mandate within a bold and innovative investment strategy if it was established as a separate standalone entity rather than under the thumb of the EDC.[4] They submitted that independence from government and its parent corporation, EDC, will be crucial to the DFI’s ability to recruit and retain the talent it will require, starting with its board of directors.[5] Others suggested that if the DFI remained under the umbrella of the EDC its independence could be further fostered through complementary policies that allow the DFI to pursue its mandate in a genuinely autonomous fashion. As Rohinton Medhora (President Center for International Governance Innovation) testified:

“Here I should sound a cautionary note that the institutionalization of the DFI within the EDC is not ideal.

The main reason it's not ideal is that the corporate culture of the promotion of trade and export is not the same as the banking culture, and it's not the same as the development culture. The skill sets, the ethos, and the objectives that each of these requires is different, and I fear that if care is not taken to situate the DFI appropriately within the EDC, it might not be fully effective.

I've been following—and associated with in some ways—the development of the DFI for some time. My first reaction was that this is a situation that cries out for a crown corporation set-up, which Canada does so well. Crown corporations are independent, and they provide good governance, diversity in partnerships, and effectiveness, all of which are built into their boards and operating structures.”[6]